Tuesday, January 15, 2008
what history tells us about new products inivatives
the history of new product initiatives during periods of easy credit, rising leverage (whether transaction leverage in LBO's, minimal haircuts on risky collateral, lower counterparty quality standards, credit line size, etc.) and rising risk appetites has often been characterized by major setbacks (high yield in the 80s, mortgage toxic waste in derivatives in 1993-1994, local currency market market initiatives in emerging markts in 1997-1998, subprime in later 1990's etc.). This latest wave is anotehr one of those times, but on a scale that was stunning and that faced a pace of quality erosion that is unprecedented.